We are seeing markets settling down, after fears about rising inflation, and the potential for interest rates to increase (to manage that) have abated. Governments know the fragility of the markets will require only modest and gradual adjustments to ensure that another crash does not occur. Though that doesn’t mean that all shares are overvalued – as what we are seeing is a continuation of diverging sectors such as many Tech, industrials, staples, energy, and health being overvalued whilst mining, leisure, gold, and financials (to a lesser extent) are undervalued.
However, with a view to the medium term, most of these sectors will probably continue to gyrate and that gives us the opportunity to BUY them at better prices and then wait for them to recover in the years ahead. Examples for us are A2 Milk (A2M) and Fortescue Metals (FMG) that we have continued to buy as the prices have fallen. The good news is that, despite the price for A2M shares falling since we started buying them, the average cost has now been lowered to $6.14 per share whilst the markets price is back to $6.72 (although it was back over $7 recently for a day) and making this profitable again. Similarly FMG’s average cost is now down to $16.98 per share but the markets price is still lower at $14.60. This is a massive 44.5% fall from when it was $26.40 on 29/07/21.
Whilst it’s true that the property and construction problems in China are largely to blame, because they obviously did not like iron ore prices at record levels and Australia benefiting from that, I have never seen a government induced reduction in “demand” ever work for very long. Supply is not something that can be quickly changed either due to long lead times in production. It’s also great to see that Dr Andrew Forrest, the Founder of FMG, will be leading the world by developing and producing “Green steel” in Australia to both help our National emissions targets and “add value” to iron ore here (which adds more jobs too) rather than exporting it to China where they add value and send it back here in products. This is exactly what we should have done a long time ago but admittedly Australia lacked the funding until now and the technology has also made this both cheaper and possible.
So we will continue to reduce our cash positions as good companies become fairly valued and are hopefully positioning ourselves for some good returns in the years ahead! The returns for this year (since March 2021) are now fluctuating around the 6% and our portfolio could hit the double digit returns by December, if markets relax and the holidays approach. Of course, we still have to navigate through the potentially difficult month ahead, as history has shown anything can happen to shake people’s nerves at this time of the year. You can see the numbers in the spreadsheet here.
We are currently participating in some Share Purchase Plans by HZR and AXE that could also boost our returns over the coming year. The results will become known in the next update and the portfolio is often doing well with a more stable increase even when the market saw some daily falls. In particular, Archer (AXE) and Camplify (CHL) helped us with rises on days when most of the markets were falling. Another reason why it’s good to build a diversified portfolio with new companies that have good growth prospects because of the great work they are doing in their fields. Here’s the detailed report from Interactive Brokers.
The Bell Potter account, with predominantly Fund managers that are not doing as well as our direct portfolio, is below:
Lastly, the cryptocurrencies are very much a wait and see part of our portfolio. It has increased again, despite the Chinese crackdowns, and could continue to rise if no other government works against it. Of course, this sector has so many new cryptos being launched that it continues to limit future increases of the main coins because there is only a finite amount of money in people’s bank accounts. Maybe in time, there will be some major winners, but it’s still going to be slower than previous booms as many people are already buying small amounts and if they don’t make large gains quickly, they often quickly “give up” too because the fees charged makes trading a very poor option and an exercise in futility.
Polygon (MATIC), Solana (SOL), Terra (LUNA), Cardano (ADA), Uniswap (UNI), Polkadot (DOT), are just some of the other professional major coins that have their good days. But game coins such as Axie Infinity (AXS) and Shiba Inu (SHIB) makes it very difficult to predict which way the “shifting sands” will go next? As gamers are very fickle and can often quickly change if they “get bored” with the game and find something better. So we have to be cautious and probably spend time looking into these games before making further investments into them.
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